The following fictitious story, about twin brothers Harry and Richard,
shows the differences between the High-3 and CSB/REDUX retirement systems,
the potential worth of the Career Status Bonus and insight of the lifetime
value of the two retirement options. How this story plays out for you
depends upon your personal situation and assumptions about your career
and the economy. A planning calculator is available on this website for
you to make some comparisons of your own.

In August 1986, Harry and Richard, twenty-year old twins, enlisted in
the military. As Harry and Richard had always done everything together,
they continued to do so by being promoted with identical dates for their
entire career. But, one event is about to make their careers and futures
different.

In 2001, Harry and Richard face a choice. They are nearing their 15th
year of service and may retain the High-3 retirement plan or they may
take a $30,000 Career Status Bonus and the REDUX retirement system.

Harry chose High-3
and Richard chose the single lump sum CSB/REDUX option. Immediately, their
finances changed. Richard now had $30,000 more in cash. This money was
his to spend as he wished -- a down payment on a house, college tuition
for the kids, a new car, or invest for use later.

This $30,000 is taxable unless placed into the Thrift Savings Plan (TSP)
or other qualified investment. TSP has been authorized and an open season
for military members to start participating in the program began in October,
2001, with first contributions to the system to be made from pay in January
2002. Under current rules, Richard may place a maximum of $10,500 in a
TSP account. Taxes would not be paid on this $10,500 nor its earnings
until withdrawal. This is a very positive feature that Richard would be
well-advised to consider. To simplify this story, however, Richard decided
not to invest in the TSP, but instead to pay tax on the entire amount
now and invest the entire after-tax balance in a mutual fund earning 8%
annually. As the $30,000 is taxable income and Richard is in the 28% tax
bracket, he will pay $8,400 in taxes on this bonus leaving $21,600 to
invest.

In 2006, Harry and Richard retire with 20 years of service. Since they
both had an average (highest three years) base pay of $3,000 per month,
Harry, under High-3, gets 50% or $1,500 per month, and Richard, under
REDUX, gets 40% or $1,200. Although Harry has a larger retirement check
than Richard, Richard has been building up the savings on his $21,600
of Career Status Bonus for the past five years -- it is now worth $28,600
(after paying taxes on its earnings).

(Note: Retirement income is generally taxable. Tax implications on the
retirement income are not reflected in this story.)

Each year during their retirement, Harry and Richard will receive cost
of living adjustments (COLA) based upon the consumer price index (CPI)
which measures inflation. Harry's High-3 COLA is the full CPI (3.5% each
year in our story) so Harry gets a 3.5% raise. Richard, however, gets
a 2.5% raise because COLAs under the REDUX system are equal to CPI minus
1%. But, Richard's Career Status Bonus is still growing in his mutual
fund.

This story continues
the same way until 2028 as they near their 62nd birthday. Up to this point,
Harry has received nearly $582,000 in retirement income and his current
monthly amount is now about $3,100. Richard has collected $415,000 total
and now gets a bit more than $2,000 each month. But, Richard is still saving
that Career Status Bonus -- it's now worth $98,000. Counting both the mutual
fund value and what he's collected in retirement, selecting the CSB/REDUX
plan netted him $513,600 -- close, but $68,300 less than Harry's received.

Their 62nd birthday also brings retirement adjustment for Richard. Richard's
retirement pay is recomputed as if he had been under High-3 all these
years. This means that he will now get 50% of his original base pay plus
full 3.5% COLAs added to it for his past retirement years. So, for one
year, Harry and Richard receive the exact same retirement pay -- about
$3,200 per month. This is for only one year because the following year,
Harry gets his 3.5% COLA and Richard gets his 2.5% COLA, but it's added
to his newly adjusted retirement salary of $3,200. This "catch-up" adjustment
impacts Richard's total accumulation and by the end of the year, his total
is within $63,000 of Harry's total accumulation. The following year Richard's
total retirement accumulation and the balance of his mutual fund begins
to surpass Harry's total accumulation.

By now some people would have spent some or all of the money that Richard
put in the mutual fund on vacations, cars, or to augment their retirement
income, but Richard wants to pass the money to his heirs and keeps saving.
When they are seventy-five, Harry has received over $1,260,000 in retirement
income; his current monthly amount is $5,000. Richard has collected over
$1,049,000 in retirement income and now earns $4,400 each month. But,
Richard is still saving that Career Status Bonus -- it's worth over $214,600.
Counting both the mutual fund value and what he's collected in retirement,
selecting the CSB/REDUX retirement option is worth $1,264,000, surpassing
Harry's total amount by $4,000. From this point forward, Richard will
continue to outpace Harry's total accumulation.

The following chart summarizes Harry and Richard's story. Remember that
this is an example that shows what the differences between the CSB/REDUX
and High-3 options. These results are dependent upon the assumptions built
into the story and the choices that Richard made.

Point
of Comparison

Harry
(High-3)

Richard
(CSB/REDUX)

15th
Year of Service

Bonus
Taxes

$0
$0

$30,000-8,400

Total

$0

$21,600

Time
of Retirement

Savings
Cumulative retired pay

$0
0

$28,600
0

Total

$0

$28,600

End
of First Retirement Year

Savings
Cumulative retired pay

$0
$18,000

$30,200
14,400

Total

$18,000

$44,600

Retirement pay for the year

$18,800

$14,400

Age
61

Savings
Cumulative retired pay

$0
$581,000

$98,000
415,600

Total

$581,000

$513,600

Retirement pay for the year

$37,100

$24,200

Age
62 -- REDUX Readjustment

Savings
Cumulative retired pay

$0
$620,300

$103,600
454,000

Total

$620,300

$557,600

Retirement pay for the year

$38,400

$38,400

Age
75

Savings
Cumulative retired pay

$0
$1,260,000

$214,600
1,049,000

Total

$1,260,000

$1,264,000

Retirement pay for the year

$60,000

$52,900

Now, on the other hand, if Richard had bought that new car in 2001..???

Many individual differences --- age, salary, years of service at retirement,
spending and saving habits --- will and should influence your decision
and will make your story with a fictitious twin different than Harry and
Richard's. A calculator that allows you to enter your personal situation
into it is available at this website so you may do some comparison of
options for yourself.